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Behavioral convergence properties of Cournot and Bertrand markets: An experimental analysis

  • Davis, Douglas

This paper reports an experiment that examines the relative convergence properties of differentiated-product Cournot and Bertrand oligopolies. Overall, Bertrand markets tend to converge to Nash equilibrium predictions more quickly and more completely than Cournot markets. Further, when products are close substitutes Bertrand markets respond more quickly to an announced nominal shock. As products become weaker substitutes, however, an increased tendency for tacit collusion degrades convergence in Bertrand markets. This effect is particularly pronounced following a nominal shock. Our results suggest that in an oligopoly context variations in decision error costs dominate a ‘Strategic Substitutes Effect’ isolated in previous experimental research.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 80 (2011)
Issue (Month): 3 ()
Pages: 443-458

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Handle: RePEc:eee:jeborg:v:80:y:2011:i:3:p:443-458
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